Managerial Economics - Sample Assignment
Added on 2021-02-20
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Managerial Economics
Section AQuestion 1.Market failure describes an economical condition when a market fails to meet thestandards of a perfect condition, due to insufficient distribution of goods and services. Thiswould impact negatively on economy because of non-optimal resource allocation. These can besolved by government interventions and private market solutions. Basically, there are variouskind of government tools in order to assess any kind of market failure. By help of these toolsissue regarding to inefficient distribution of resources can be resolve easily. Herein , below somekind of tools are mentioned that are as follows such as :Fiscal policy – This can be defined as a kind of policy that is linked with process ofmanaging the spending level and rate of tax to control the inflation of economy. It can behelpful in the aspect of overcoming from any kind of market failure. This becomespossible because government can increase the rate of tax and can minimise the expenses.If tax rate will be higher then prices will be higher of products and services which maylead to decrease in quantity of demand. Hence , the market failure can be overcome byhelp of this policy if government implements it effectively.Control of monopoly power – Another tool to overcome from the market failure ismaking effective control over the monopoly and this can be done only by help ofgovernment. It is so because government can create laws and legislations that may lead tominimising unfair competition level , ineffective discrimination of prices. Thus in thecase of market failure government can play a significant role by making effective controlover monopoly power. Price mechanism – In addition , the price mechanism is also an another way to managingthe economical situation in case of market failure. Basically , the price mechanism can bedefined as a way of changing the behaviour of customers and producers. It can becomepossible only if government apply higher amount of tax rate on those products which areharmful for consumers as well as for environment. For example , the if governmentcharges higher amount of tax rate on tobacco products then automatically its demand willdecrease. In addition , in the case of market failure due to lower supply can also beresolve by this tool. 1
Use of legislations – Apart from it , if government can use various kind of legislations inorder to sort out from market failure. In this case , only government has the right tomodify or remove any legislation. Such as government can implement legislation onthose products whose demand is higher and supply is low. By doing this government canmake match between demand and supply of products because if tax rate will be higherthen price will automatically raise. As a result customers will avoid to purchase harmfulproducts and market condition will be improved. Given situation – The given situation is about a company that produces steel productsand production of each unit creates one unit of sludge. For this , company dump the sludge inriver that is harming to environment as well as water of river. In this situation , implementationof “Price mechanism” can be helpful to protect the environment and river. This is so because ifcustomers will aware to minimise the use of steel products then demand will lower andproduction also. This may become possible when government starts to charge higher amount oftax rate on that particular company because they are harming to environment. By doing so , theamount of sludge can be reduced and river will be protected. As well as in this case if this policywill not be implemented then it can be resulted to harm of environment and river. It is so becausein the absence of any kind of legislation and taxation that company will not stop the productionof steel products in greed of profit and it all can be resulted in loss of environment. Hence, thistool can be beneficial in order to prevention of production of harmful products as well as indecreasing demand also. Question 2:Solution: Given, Market Demand of Potatoes (QD) = 1000 – 250P Market Supply of Potatoes (QS) = 150 Phere, P is the price per bag and Q is number of bags per month, while QD represents the quantitydemand of potatoes and QS. a) To determine the Equilibrium Price, set demanded quantity equal to quantity supplied as - QD = QS 1000 – 250 P = 150 PAdd 250 P from both sides of equation as -1000 – 250P + 250 P = 150 P + 250 P2
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